The circular economy, front-stage soon?

Yves Legrain / Researcher, former member of France's Economical, Social and Environmental Council / 2014-12-13

In industrial spheres, the trend towards circular economy is drawing increasing closer attention. Some companies have identified in the recycling business an opportunity to develop new activities, while others see eco-design as a means to raise profit margins, while yet others see a way to re-think their corporate organization. Corporate image is part of the changing scene, but the circular economy concept is now a real industrial concern. Nonetheless, a lot remains to be done to make it fully operational. The challenge is now to see the concept reach maturity.

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Yves Legrain / Researcher, former member of France’s Economical, Social and Environmental Council

The concept of the circular economy is not new: the first models go back to the early 1970s. However, there are two reasons why the process took time to develop. The first is both cultural and social. We have a thematic here that was originally adopted by the pro-ecology movements and was integrated into an activist approach. For a long period, the underlying concept remained in the margins of the corporate world; even today, numerous leaders are still reticent.

The second reason relates to the abundance of raw materials since the mid-1980s, associated with the liberalization of global markets and the end of the Cold War. As Didier Julienne explained in a ParisTech Review interview, “in the 1990s numerous commentators were hailing the ‘peace dividend’ brought on by the collapse of the Soviet block and the spread of democracy. Vanishing frontiers were to usher in a new era of prosperity, increasingly efficient markets would provide commodities.” Then the rapid growth of the emerging countries positioned the issue of the raw materials front-stage and, for certain critical or strategic commodities, such as rare earths, oil, or water, we are witnessing some rough-shod competition for existing resources. Besides, political risks came back to the fore, notably in connection with energy source and procurement. Solutions include vertical integration, for corporate structures, securing access to resources and rediscovery of certain mining strategies, for nations. We now recognize that we are living in a world with limited resources. All these elements contribute to explaining a new interest in the circular economy, which has gained in maturity.

Circular economy is in the air

What precise meaning can we ascribe to a circular economy? The French National Waste Council (CND) has offered the following definition: “a circular economy is a production and exchange system taking into account sustainability and recycling of goods and their component parts, such that they may return to the status of new raw materials or reusable objects.”

Professor Suren Erkmann, chair of industrial ecology at the University of Lausanne, remarks that a totally circular economy simply cannot exist, if we are to comply with the laws of thermodynamics: “Even when we recycle matter, there is always a loss of matter and energy due to the mechanisms of entropy.” François Grosse, advisor to the Chairman of Veolia Environnement, adds: “There is no way we can procure resources and not lose some of them in the process. But we should strive to keep the amount of goods circulating in the economy above the amount of the flow of input and output. That’s the heart of the model.”

The concept of a circular economy can be extended to the macro scale, an ambitious project that best fits 2050 rather than today’s world. But the concept also underlies a series of innovations that relate to both industrial and economic processes: an extension of value chains downstream, valorisation of wastes, development of new activities, and new work on the upstream segments.

We observe a multiplication of experiments carried out by start-ups such as Nerovia, who valorise waste urban water effluents, or multinational groups such as Veolia, who have industrialized recycling activities and are learning to valorise new added value segments.

The economic challenges in development and maturation of these new models are potentially very important on the scale of a country (in the UK, the industrial potential is deemed in excess of 5 billion pounds, cf. this article in The Guardian) and for enterprises. Reducing consumption of raw materials contributes positively to corporate competitivity, anticipates on possible supply difficulties and reduces environmental impacts due to production processes – impacts which are no longer invisible outsources but can be translated in terms of costs in the corporate accounts, in a context that reveals more stringent regulatory constraints on pollution and the emergence of a carbon tax in Europe and in China.

Only ten years ago, there was frequently talk about greenwashing to denounce companies who indulged in PR, saying how exemplary they were at supporting sustainable development. This is not so frequent today. The motivations of the corporate world are diverse. Some see recycling as an opportunity to develop new activities, while others are looking favourably at eco-design to bolster their profit margins by reducing costs. There are also those who see a chance to rethink their corporate organization structures. When Rhodia made a move to adopt “green chemistry,” their intention was not to upgrade the company’s image, but to make a move to reposition their activities and differentiate their products. This is not a PR operation, but more akin to strategic market positioning.

In like manner, the principles that underpin a more circular economy are at the heart of the functional economy, where producers remain proprietary of their goods and sell the right to use them. For the operation to be economically viable, producers find an interest in eco-designing their activities by setting up a circular economy for the raw materials they transform, thereby maximizing the rate of use of tangible components in the production as a whole.

Thus refurbishing and repairing Internet ‘boxes’ and TV decoders is now a disputed market for specialist companies. This new form of industrialized repairing meets the interests of Internet access suppliers who hire out boxes to their customers, and encoded TV channels such as Canal+ who provide their subscribers with specific decoder boxes. The box owners, who supervised the design, are encouraged (in Europe and in the USA via specific regulations) to improve box design in order to optimise repair work – inasmuch as this tends to lower overall life costs. The most recent designs of box such as the Neufbox Evolution incorporate a continuous design upgrade eco-design process.

We can also mention products like aircraft tyres, with an annual production of 1.5 million. Michelin, one of three world leaders in this sector, have developed a tyre re-tread technology along with an original business model where the tyre manufacturer remains owner of the tyres produced when mounted, assuring re-treading for the user companies at the most opportune time. In short, Michelin is no longer selling tyres, but aircraft landings.

Generalizing the transition

In the field, both public and private actors are mobilized. Certain companies are anticipating the changes by working on their supply-side, on product design, on service offer, and some – as we can see in the pulp & paper sector – are even changing their business models. Regions and local authorities are also moving to adopt more circular economies for their administrations, to be used as local development levers. An example often cited it the Kalundborg Eco-industrial Park in Denmark, where waste matter and activity by-products become the raw material input for another activity. On the site the Energy E2 Asnæs Power Station also produces plaster used by its neighbouring company BPB Gyproc A/S to turn out BA13 plaster boards commonly used in the building trade.

Kalundborg

Kalundborg

Some companies who claim to be adepts of a circular economic approach have in fact and above other considerations, found that it provided for an excellent sales pitch. Recently the US Federal Trade Commission (FTC), as reported in the Guardian, issued a strong reminder to 15 plastic bag makers about making fallacious eco-friendly claims. But these misleading claims attest to the fact that the concept of a circular economy is gaining ground with the consumers. The range of strategies and motivations, the numerous experimentations in the field, underscore the dynamics of such approaches. The trend of numerous corporate acts, important expertise and research activities and the implementation of various public and private incentive financial support measures, can all be seen as part of an evolution for industry to become more economic in terms of its use of raw materials. In this sense, a more circular operation of the economy is now placed on course, either in the eco-design stages, or in repair work or reconfiguration, recycling or industrial ecology. Nonetheless, a lot remains to be done to make the changes fully operational.

The challenge today is to see the system mature. This is no obvious move, even when the underlying technologies are totally up to date. If we look at the case of the US company Novelis, #1 in the world for aluminium recycling processes, this company has invested over 200 million euros in a recycling plant in Nachterstedt (Germany), to produce the raw materials for its evercan, comprising 90% recycled aluminium. But the major drink producers are not following Novelis and prefer to stay with their normal, traditional suppliers. For other products, it is the customers who do not follow, either because it would upset their habits, or as Mike Pitts (Innovate UK) notes, because they are not given the opportunity to benefit from the gains associated with new circular models.

In order to progress from the current emergence phase, a growth in circular economics requires there be a form of coordination, i.e., calling for public support and monitoring.

Educating consumers and setting up a regulatory or fiscal framework are part of the process. But there is also a call for industrialists to be coordinated too, in terms of a true economic policy. For the industrialized countries, in particular, a major challenge consists of spelling out a road to re-industrialization, competitiveness and protection of the environment. Several studies do make a direct causal relationship between adopting a new industrial model, a return to a growth trend, creation of jobs and reduced greenhouse gas (GHG) emissions. Of note here is the trend of What if Reports and theMacArthur Foundation Reports, as well as the economic studies carried out for the Caisse des Dépôts bank to assess the French Government incentive Investments for the Future programme and studies carried out by Ademe (the French National Environmental Agency).

To transform isolated initiatives into sustainable paths, we must first remove the technological and cultural brakes. This calls for a political stimulus taking into account the uncertainties and questioning as well as the scale of time needed, since changes such as we are discussing here are all long-term, i.e., several decades will pass before we see a reversal in major consumer trends and the way we use raw materials. Resource-related public policies must, as is already the case for climate change, choose a target horizon two to three generations ahead.

Public authorities can play a minima a role as facilitators and coordinators, in a variety of formats depending on the scale we are addressing: at a national level, for instance, this can take the form of a sectorial accompaniment, but also regulatory and fiscal constraints. We must never under-estimate the need also to have a regional level, if only to encourage and adapt the measures to real local situations.

In order for this public effort to be deployed appropriately, we must bring a degree of rigour to a nebula of innovations which has not yet proven its coherency. Various approaches that lead to reduced consumption of raw materials are integral to a circular economy. Notwithstanding, the concept is not as yet fully stable and it is interpreted in varying manner according to the promoters’ ambitions.

What parameters can be selected?

To start with, we can dispel certain misunderstandings. One risk is to perceive the circular economy as a sustainable system, whereas an economy that consumes far too much resources can be circular. In like manner, we cannot draw a clear-cut analogy with biological eco-systems.

The living world has continuously imbalanced dynamics that evolve according to a both a long term and a slow process; only a short to mid-term vision gives you the impression of having an idyllic stability. In contradistinction, enterprises can change their activities and product lines rapidly and, in sense, ecosystems in a circular economy have no special reasons allowing them to avoid the instability we see in the global economy.

We should not be asking more from a circular economy than it can offer: it does not represent a changeover from an industrial to an ecological standpoint, but simply an optimization – albeit on a hitherto unknown scale – of the way we consume raw material resources.

This more modest and less militant approach characterizes a maturation phase in which circular economy proponents are engaged and as we witness, in France, the activities of working parties set up in the wake of environmental conferences and the First ‘Assises’ of a circular economy, and in Europe through the recent European Commission communication Moving towards a circular economy: A zero waste programme for Europeor as embodied in Japanese and German law and in the 2008 Chinese initiative.

This evolution reveals a closing positions of ecological militant concerns, of the commitment of public authorities and of the interests of the industrialists seeking new opportunities to grow market wise and all actors will agree here to the prime necessity to deal with problems in a concrete manner – seen by some as an issue for public policy framing and by other as a business opportunity. Any acceleration of the process depends on the commitment of engineers who apply a basic approach, eco-design and a systemic approach, industrial ecology.

Eco-design is based on the traditional principles of product design, focusing on economic and technological parameters, to which new considerations are added for the purpose of reducing negative environmental product impact, from the initial product design phase to its end-of-life. An eco-design approach therefore incorporates items that relate to use of raw materials, to fabrication, assembly processes and distribution but also to the use modes (sustainability, reliability, repair) as well as end-of-life cycle decisions such as reusing the product or its component parts, in terms of the possibility to separate component parts in order to valorise some and eliminate others, viz., those dangerous for the environment or for our health. It is during the design and development phases of a given product that action must be taken since 70% of the product costs and 80% of the environment impacts are in fact pre-determined, from the moment the product in question was originally designed.

Potentially, eco-design potentially involves all industrial enterprises. It is integrated to a more ambitious approach developed over the past two decades. So-called ‘Industrial ecology’ has been built up as a specialty round a theoretical corpus associating engineering sciences, earth sciences (thermodynamics and biology), social sciences, law and economics. The building of a conceptual, rational and scientific basis, on which the bases of industrial ecology can be laid, allows us to transcend the traditional descriptions appertaining to circular economies, which occasionally introduce ideological overtones; we can then apply the concepts clearly to concrete cases.

Industrial ecology does not entertain dreams of attaining industries that will blend in with Nature. Nevertheless, there is a refusal to oppose natural and industrial eco-systems. Industrial ecology tries to see how nature and industry can best fit together. In this case, the reasoning applied must be placed in a continuum running from those eco-systems only slightly affected by Man, to largely anthropic systems, or even totally artificial systems.

If we return a moment to Suren Erkman’s views, we can describe an industrial system as a certain flow/stock configuration in terms of matter, energy and information; industrial ecology seeks to optimize the ‘circulisation’ of product and waste flows as well as shared, mutually beneficial, services.

A scientific approach here seeks to gain a better understanding of the interactions among various economic activities and our biosphere. Two major methodological approaches can be used: on one hand, industrial metabolism (analysis of matter energy flows and stocks) and product life-cycle analyses. In eco-systems, the various species of organism come together according to their characteristic associations; in the industrial systems, we must look for the best associations (fertilizer-cement; beetroot-biofuels; pulp-paper…) that can be optimized on the scale of several enterprises taken together, or sectors, or Regions and even the industrial system as a whole. Seen in this light, industrial ecology is not just limited to re-using wastes and by-products of a given enterprise as the raw materials for other enterprises. On the contrary, there must be a commitment to demonstrably show that there can be a new value chain that can only be operated and managed by actors who agree to cooperate with each other. Diversity, complexity and overlapping of files forces the actors, in a sense, to work together.

Geographic factors are important. The relevance of the boundaries within which the ‘circularization’ is to be organized depends on the nature of the goods (value, weight, intrinsic danger) and the local industrial infrastructures (adapted capacity and technologies in both the recycling phase and the re-use processes for the recycled raw materials). We must also take into account the supply diversity to guarantee regular material flow. Thus, the principles underlying industrial ecology can be applied not only to industrial partnerships at either local, national or cross-frontier levels, but also to territorial development via implementation of industrial and territorial ecological measures.

These partnerships can be complex and, dare I repeat it, call for a coordination which is an all-important question. It can also call for public intervention, but can be integrated to the design phases of several partners concerned, notably the consumers themselves. In this case, we talk of eco-socio-design to describe an approach in which the varying (socio-cultural, political, aesthetic, economic) points of view are all taken into account when designing products. Environmental and social damage or benefits can also be identified in this approach and likewise taken into account for each phase of a product life cycle, so as to both improve choices where either beneficial or deleterious impacts on the environment are involved and to improving the quality of life for certain partner parties. A framework approach developed by the Eco-Design Pole at Saint-Etienne presents the special features and requirements needed in their approach, inducing necessarily– according to the proponents – a novel, partner-participative, form of management.

This move to gain in coherency among actors from different horizons and with differing interests, calls for a transverse approach that goes beyond the framework of traditional compartmented sectors and organizations. The hopes for success in taking these measures depend on the capacity of the local actors to mobilize their forces, to exchange and to collaborate. The actors involved can be enterprises or individual actors working for territorial development. Their commitment is part of a local development dynamics with the will to re-structure the economic situation through success in discovering and implementing coherent complementariness among activities, valorisation of resources and territorial ‘anchoring’ of the activities.

The underlying technological dynamics, drawing largely on engineering sciences, lies at the heart of the process. This is primordial to encourage and enhance the transition for today’s industry-intensive system to a sustainable system serving Society’s needs.

Ed.- The author is solely responsible for the analyses he offers. The concepts and analyses he presents here are to be seen as extensions of an Advice Note and Report issued in January 2014 by the French Economic, Social and Environment Council (CESE): “A transition to an economy with lean raw material consumption”